As the old saying goes, “Words mean things.” The exception may be the Federal Reserve (FED), which has its own jargon (perhaps words mean other things?). I sometimes think it is intentional. Other times I KNOW it is intentional. We don’t even hear the truth about who and what the FED actually is, as it is called the U.S.’s Central Bank.
I am not going to discuss all the nefarious aspects of the FED in this blog, but I want to explain why what the FED does and says affects the market so much. Mostly, it is because they have too much power. It also has roots in the sometimes conflicting goals established for the FED. I contend that no one should have as much financial power over all of us as the FED currently wields.
I have copied the Mission Statement for the FED directly from their website.
The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve's duties fall into four general areas:
- conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
- supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
- maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
- providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
Additionally, the FED claims to encourage full employment by keeping the growth in the economy on a steady keel.
This all sounds good, doesn’t it? But in my opinion, it is a total smokescreen designed to remove a very responsible function from the Legislative Branch. In other words, it is a scapegoat for elected House and Senate members who have the ability to point fingers at this “independent” Board of Governors.
I don’t buy any of it, nor will you when you read the history behind the concept of a Central Banking System. One of my favorite books is The Creature from Jekyll Island, by G. Edward Griffin. This traces the history of the entire Central Bank discussion from the days of Jefferson and Hamilton, and explores the politics and tragedies that eventually resulted in the creation of the FED.
Griffin’s book also covers the damage that has been done to the American economy, and especially to the American worker, in the 103 years of existence of the FED. Read it, and you will never be the same.
Why does it matter? Since the FED raised the interest rate by a mere 0.25% late last year, $8 Trillion ($8,000,000,000,000) has been lost from the global balance sheet. Yes, that number has twelve zeros! Again, no one should have that much power!
As investors, we should be aware of FED policy, and we should be wary of that power. However, investors should not be driven to make bad market decisions. Don’t let “FED-speak” cause you to make irrational or knee-jerk decisions about long-term investing. It may help to consult a qualified, fee-only financial planner to share your thoughts and decisions. One thing you can all do is to listen to our radio show. We encourage your questions, either live or via email.